Canada Tax brackets were created to know how much money you need to pay in annual personal income tax to the Government of Canada through the Canada Revenue Agency (CRA).
Although many Canadians dread the tax seasons and wonder how much the taxman will bill them. However, as a citizen or resident of Canada, you should be savvy about the tax brackets in Canada.
In fact, you should take anything that has to do with taxes rather seriously because it could have a bearing on your financial health.
Canada income tax brackets vary for everyone, with your tax rates determined by the total amount of income you earn in a tax year, and how much of that income is considered taxable.
In this article, we have put together everything you need to know about the income tax rates and how they may impact your net income. So, stick around and learn all there is about Canada Tax Brackets Federal and Provincial combined.
Canada Tax Brackets 2022 & 2021
We are kicking things off with a table comparing the Canadian tax brackets for federal income tax in 2022 to those in 2021:
Federal Income Tax Brackets 2022 | Federal Income Tax Brackets 2021 |
15% on the first $50,197 of taxable income | 15% on the portion of $49,020 or less |
20.5% on the next $50,195 of taxable income (on the portion of taxable income over $50,197 up to $100,392) | 20.5% on the portion of $49,020 to $98,040 |
26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625) | 26% on the portion of $98,040 to $151,978 |
29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708) | 29% on the portion of $151,978 to $216,511 |
33% of taxable income over $221,708 | 33% on the portion of more than $216,511 |
Source: Government of Canada
What are Tax Brackets and How Do Canada Tax Brackets Work?
Tax brackets were created to know how much money you need to pay in personal income tax yearly. These brackets apply to income personally earned within the minimum and maximum amounts that are predetermined. These amounts are called tax rates.
The amount of tax you will pay is dependent on where you live in Canada and how much you make from all your sources of income. Your provincial rate is dependent on the province you’re living in on the 31st of December of the tax year.
For example, if you move from Nova Scotia to Ontario in August, and you’re residing in Ontario on December 31st, you would fall right under Ontario’s provincial tax rates and therefore Ontario tax brackets. So, Canada tax brackets are not so difficult to understand.
Your tax bracket is based on your income that is taxable (which is basically your gross income from all your income sources minus tax deductions). The remainder of the income after claiming your eligible deductions is your net income.
From the moment you are aware of your taxable income, you can apply provincial and federal rates to your net income that is taxable. To calculate your total tax bill, you need to calculate your federal income tax first, then your provincial taxes.
Canada’s Provincial Income Tax Bracket
The table below displays the income tax brackets for some provinces for the years 2022 and 2021. Specifically, we will look at the Alberta tax brackets, and tax brackets for the provinces of Ontario and British Columbia.
Province | Provincial Income Tax Brackets 2022 | Provincial Income Tax Brackets 2021 |
Ontario | 5.05% on the first $46,226 of taxable income 9.15% on the next $46,228 11.16% on the next $57,546 12.16% on the next $70,000 13.16% on the amount over $220,000 | 5.05% on the first $45,142 of taxable income 9.15% on the next $45,145 11.16% on the next $59,713 12.16% on the next $70,000 13.16% on the amount over $220,000 |
Alberta | 10% on the first $131,220 of taxable income 12% on the next $26,244 13% on the next $52,488 14% on the next $104,976 15% on the amount over $314,928 | 10% on the first $131,220 of taxable income 12% on the next $26,244 13% on the next $52,488 14% on the next $104,976 15% on the amount over $314,928 |
British Columbia | 5.06% on the first $43,070 of taxable income 7.7% on the next $43,071 10.5% on the next $12,760 12.29% on the next $21,193 14.7% on the next $42,738 16.8% on the next $64,259 20.5% on the amount over $227,091 | 5.06% on the first $42,184 of taxable income 7.7% on the next $42,185 10.5% on the next $12,497 12.29% on the next $20,757 14.7% on the next $41,860 16.8% on the next $62,937 20.5% on the amount over $222,420 |
Source: Government of Canada
For a comprehensive list of Canada tax brackets for provincial income tax in 2022 (featuring all the provinces), check out this Service Canada page.
Example of Tax Calculation
Imagine a young man named Mira who lives in Manitoba. Mira’s annual income is $350,000, but after his RRSP contribution, Spousal RRSP contribution, home-based business deduction, and other tax deductions and tax credits, he has a taxable income of $205,000. Here’s what his tax calculation might look like:
Mira’s Federal Tax Bill for 2022
15% X the first $50,197 = $7,529.55
20.5% X The next $50,195 = $10,289.975
26% X The next $55,233 = $14,360.58
29% X The next $49,375 = $14,318.75
So, his total federal income tax bill = $46,498.855
Remember, buddies: Mira’s provincial rate is based on his province of residence as of December 31 of the calendar year. That province just so happens to be Manitoba.
Mira’s Provincial Tax Bill for 2022
10.8% X The first $34,431 = $37,18.548
12.75% X The next $39,985 = $5,098.0875
17.4% X The next $130584 = $22,721.616
So, his total provincial income tax bill = $31,538.2515
Mira’s Total Income Tax Bill for 2022
Therefore, Mira’s combined federal and provincial taxes owing is $46,498.855 + $31,538.2515 = $78,037.1065.
Why Do Canada Tax Brackets Matter?
Where your income lies within the Canada tax brackets helps you understand the breakdown of your income taxes. If you have an extra income source that lifts you into another bracket, it could be the reason your amount of refund is not what it was the previous year.
It could also be the reason you have taxes owing. The brackets you are placed in can also help you decide how and when to claim certain credits/deductions. So, take the information about the Canada tax brackets pretty seriously.
Ways to Get into a Lower Tax Bracket
The two main ways of lowering your taxes or increasing your tax refunds are tax deductions and tax credits.
Amounts that lower the taxes you pay on your taxable income are tax credits. Some of them are refundable while others are not. The GST/HST credit is an example of a refundable tax credit. For non-refundable tax credit, an example is the charitable tax credit.
Other non-refundable tax credits include:
- Exemption for taxpayers over 65 years old
- Personal exemption amount
- Exemption for taxpayers with children
- Exemption for individuals receiving a pension
- Exemption for caregivers
- Exemption for people with a certified disability
Amounts/expenses you subtract from your personal income are tax deductions. This makes your taxable income lower (which lowers the amount of your income that can be taxed). Self-employed business expenses are an example of tax deductions.
The popular tax deductions include:
- Union/professional dues
- Pension Adjustment
- Child care expenses
- Yearly maximum allowable Registered Retirement Savings Plan (RRSP) contributions
- Donations to political parties/charitable organizations
Another valid way to lower Canada tax brackets is through income splitting. Income splitting requires the transfer of income from a family member who makes a high income to a member of the same family who makes a lower income with the goal of reducing the tax paid by the overall family.
The idea of income splitting is that the tax burden of a family can be reduced considerably if the income is taxed on the hands of the person with a lower income.
Related: TFSA vs RRSP: How to Choose?
Conclusion on Canada Tax Brackets
It is vital to comprehend the essentials of how Canada tax brackets function if you are a Canadian resident or citizen.
With sufficient knowledge about tax deductions and tax credits, you can help yourself lower your tax bracket, thereby reducing the amount of taxes you owe to the government.
Your knowledge of tax brackets can help you find out the reason you have taxes owing and also help you decide how and when to claim certain credits/deductions.
FAQs on Canada Tax Brackets
Who Has Higher Taxes the US or Canada?
Many factors determine how much tax an individual pays in the US or Canada. A taxpayer’s personal situation is what mostly determines if they would be in a better position than others in another country. So, it’s not black and white.
It is worth knowing that wealthy Americans can take advantage of many tax deductions. On the other hand, it’s not as easy in Canada when relatively compared due to Canada’s Alternative Minimum Tax.
When Must Tax Be Paid?
Taxes have to be paid all year round as it accumulates. Employers subtract an amount for taxes right out of your paycheques and remit it to the government of Canada.
If your employer is not deducting enough in the course of the year, you will be required to pay more when you file your tax return.
However, if your employer is deducting too much or if you have a huge tax deduction or tax credits, it is likely that you will get your money back after you file your annual tax return.
It is not strange to see people filing tax returns by themselves by following the steps in the tax return packages made available by the CRA or by using tax software to file their taxes.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.
